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G7 closing gap with BRICS in creation of new businesses

The gap in growth rates of new business formation between the G7* and BRICS** economies narrowed in the year to 2013***, according to research of the most recent globally comparable data by RSM, the seventh largest global network of independent audit, tax and advisory firms.  RSM reviewed 36 countries in its report, ‘Rebuilding the Global Economy’.

The BRICS had a rate of net new business creation over seven times greater than the G7 countries from 2007-2011, posting a 5.8 percent Combined Annual Growth Rate (CAGR) versus a 0.8 percent increase by the G7. In 2012 the BRICS rate of net new business growth was 4.9 percent, generating 1.2 million new businesses; the G7’s was 1.9 percent, adding 531,000 companies.

Jean Stephens, Chief Executive Officer of RSM International, comments: “Whilst our report highlights a convergence of new business growth rates between the G7 and BRICS economies, with the BRICS collectively showing much stronger growth, there is huge variation within the two groups."

All the G7 countries apart from Italy and Canada saw net new business foundation growth in the year to 2013, albeit at modest rates, with the exception of France which continued to show stellar growth, versus their combined annual growth rates of the previous five years. In contrast, China was the only BRICS nation to increase its rate of business origination, separating itself further from the rest of the pack.

Ms Stephens continued: "Entrepreneurs all over the world are continuing to start businesses, the most active sectors being wholesale and retail trade, and professional services, which have relatively low barriers to entry. However, nearly a third of the countries we reviewed exhibited a decline in the number of active enterprises. Creative destruction and the reallocation of capital to more efficient existing and new businesses will have a large part to play in this process but the global economy remains fragile. The watch phrase for the next year must be no more than cautious optimism as individuals and companies respond carefully to government actions and macro indicators.”

France exhibited the fastest rate of new business creation of all 38 countries between 2011 and 2012, delivering 16.7 percent net growth, mostly as a result of the “Auto Entrepreneur” programme, versus a 4.5 percent CAGR from 2007-2011.

Within the rest of the G7, the USA, Japan, Germany and the UK all showed modest growth but increases on their CAGRs over the previous five years (USA, 0.6 percent versus 0.3 percent; Japan, 0.8 percent versus -0.1 percent; Germany, 1.1 percent versus 0.6 percent; UK, 1.2 percent versus 0.7 percent).  Italy declined by 0.3 percent and Canada dropped by 13.6 percent, the worst performance of all 38 countries.

The BRICS were led by China (9.1 percent versus 6.9 percent).  Brazil grew by 3.4 percent, down from 5.2 percent, but the other economies showed negative growth: Russia (-0.4 percent), India (-3.2 percent) and South Africa (-10.0 percent).

RSM’s analysis includes an insight into which industries are leading new business creation, and shows that the foremost drivers are wholesale and retail trade and professional services. By contrast, financial services and manufacturing have generated relatively small shares of enterprise births, as financial regulation and low demand continue to constrict these markets.

The report indicates that well targeted government interventions can boost the survival rates of startup companies that require time and capital to translate their competitive assets into sustainable growth.

* Canada, France, Germany, Italy, Japan, UK and US

** Brazil, Russia, India, China and South Africa

*** 2012 (most recent globally comparable data available)

ENDS

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